Specialists stand out as global environmental consulting market grinds to a halt again

Shrewsbury, United Kingdom — The value of the global environmental consultancy (EC) market reached US$28.7 billion (£17.3bn) in 2013, down 0.8 percent over the previous year, according to the latest report by business intelligence provider Environment Analyst. The sector was assessed to be lagging global economic growth — which was 2.9 percent in 2013 — mainly owing to the impact of the international mining sector downturn, and U.S. government shutdown and federal budget squeeze.

The top 10 firms ranked in order of gross global EC revenues in 2013 are: CH2M Hill, Tetra Tech Inc, Arcadis, URS Corporation (owned by AECOM from 2014), Golder Associates, Environmental Resources Management (ERM), AECOM, AMEC Environment & Infrastructure, GHD (inc. CRA) and Grontmij NV and Cardno (in joint tenth position).

The next 14 are: Antea Group, MWH Global, RPS Group, ENVIRON, Jacobs (inc. SKM Consulting), Parsons Brinckerhoff (owned by WSP Global from 2014), WorleyParsons, Royal HaskoningDHV, WSP Global, ICF International, Mott MacDonald, ATKINS, SLR and Coffey International.

As a result of recent M&A activity, two firms appear in the analysis for the first time in this edition — Jacobs (which acquired SKM Consulting) and GHD (which bought Conestoga Rovers and Associates (CRA). Antea Group (headquartered in the Netherlands) is another newly profiled firm this year.

Together, the environmental consultancy practices of the ‘Global 25’ claim a combined share of 46.3 percent of the total global market in 2013. Reflecting the fragmented nature of the market, only the top three players — CH2M Hill, Tetra Tech Inc and Arcadis — are able to boast overall market shares in excess of 4.5 percent, largely thanks to their strong positions in the dominant North American region (which accounts for 53 percent of the total). But this is set to change when the latest ‘mega-mergers’ completed in the wider engineering and professional services sector are taken into account.

The joining forces of AECOM and URS in a $4 billion takeover deal completed in Q4 2014 — creating an entity with staff numbering 100,000 — will see this pairing leapfrog straight to the top of the pile with combined pro forma EC sales giving it a market share of 7.2 percent and a clear lead over its nearest rivals. Other M&A deals set to shake up the top rankings include the acquisition of Parsons Brinckerhoff by WSP Global (also completed at the end of last year) and Danish player Ramboll’s intended purchase of ENVIRON.

The nature of the global EC market is such that there are a wide variety of business models operating in the space. Environment Analyst identifies three major types of operator in terms of their core business model, market positioning and how environmental consultancy fits in with the overall group, defined as: large-scale integrated firms, multidiscipline hybrids and specialists.

Editor of Environment Analyst's Global Market Intelligence Service and co-author of the report Liz Trew commented: “International environmental consultancies are once again seeing challenging conditions with many of their key markets flat or in decline – and this has been one of the drivers for consolidation in the sector. Unfortunately news of job losses has once again been hitting the headlines as many of these firms seek to adjust their resources to the slowing demand.

“But positively, our research shows that the smaller specialist firms in the peer group have been growing and thriving over the last few years in spite of the market challenges, while the large-scale integrated and multidisciplinary firms – for whom environmental consulting activities account for less than 50 percent of the business (and for some as little as 2-5 percent) — have been struggling to grow organically in the space.”

Although they are in the minority among the Global 25, the report finds that the specialist firms — including Antea Group, ENVIRON, ERM, Golder Associates, SLR and Tetra Tech — achieved average organic EC revenue growth in excess of 25 percent from 2010-2013. Meanwhile, the non-specialists were only able to record organic growth of 1-1.3 percent during the three-year period.

Trew added: “Our analysis supports the theory that there is a definite client preference for firms which retain their specialist focus in the environmental/sustainability consulting field. But at the same time, the wider support services market is moving towards super-sized companies with full life-cycle service provision offering clients a one-stop shop, which means the specialists are under pressure to diversify.

“Another issue is that the large integrated firms are more focused on winning high-value contracts worth tens or hundreds of millions of dollars, while the EC sector is characterized by a large tail of much smaller contracts. We have already seen some evidence of the super-groups cutting back their environmental teams and operating them more as an internal support function than as standalone consulting units.”

The EC staff numbers employed by the Global 25 rose by just 1.8 percent to reach approximately 72,400 in 2013, but 12 of the practices saw a contraction in headcount.

Based on the service area breakdown of the Global 25's aggregated EC revenues, Environment Analyst finds contaminated land services remains the largest single work area in global EC market in 2013, representing some 32 percent of the total, ahead of the 23 percent share held by water and waste management. Environmental impact assessment & sustainable development takes a further 18 percent, whilst environmental management, compliance and due diligence services represent 14 percent. Climate change & energy related services generate a further 8 percent of the total.

According to the study, the global EC market is forecast to reach $32.6 billion (£19.7bn) by 2018, up 13.5 percent. Commenting on future growth prospects for the global EC market, Liz Trew said: “Although our forecast model for the global market has been downgraded from the previous edition of the report a year ago to a modest compound annual growth rate (CAGR) of 2.6 percent over the next five years, this nevertheless equates to an additional £3.9 billion in EC revenues being added by 2018.

“We expect the specialist firms which retain their independence and environmental focus to continue to do well and grow organically above the market rate as they have done so historically. There are also more big M&A deals on the horizon to further shake up the rankings.

“Future market growth will also be highly sector- and region-specific, with spend on climate change and energy services set to grow by over 30.5 percent in the next five-year period, while Latin America and Africa/Middle East will be higher growth regions — seeing increases of 33.6 percent and 26.7 percent, respectively.”